In Loule, a biggish market town in the Algarve, I met Helena Martins, a friend of a friend. She's retired now and felt that although the more generous pensions – upwards of €1,000 a month – were about to be pruned in Portugal, most people of her age would fare better than younger generations.

"We grew up in a different age," she said. "Portugal was poor then. We know how to live simply, and economise. Lots of older people around here, particularly in the countryside, still grow their own vegetables. We shop very sparingly and can live on very little. The younger ones aren't the same. They don't know how to live within their means, that's the problem."

Helena said that in Loule and neighbouring Quarteira, apartments were being repossessed by banks and sold off cheap at auctions held almost weekly: "Flats that a few years ago would have cost €120,000 or €130,000 are selling for less than a third of that. Those people who have money, they're going to do very well out of this, very well indeed."

The inland revenue, similarly, is confiscating luxury cars bought at the height of the boom by people who find they can no longer pay their taxes. "It's going to get worse before it gets better," she said. "In a year's time, it really doesn't bear thinking about, with the tax rises and price increases that are coming. Some people already do two, even three part-time jobs."

Young couples in particular are really struggling, Helena said. One of her neighbours runs an unofficial cut-price creche, less expensive than the state-regulated nurseries, to make a bit of extra money. "People are so desperate to cut costs wherever they can, she has no shortage of customers," she said. "But they're also so desperate that sometimes they don't pay her. And because she's unofficial, there's nothing she can do."

Comparable horror stories abound, she added, about what goes on in unregulated and unofficial care homes that have sprung up for the elderly: "Everyone is looking to spend less any way they can; there aren't enough approved care home places and those there are are unaffordable."

Portugal's far-reaching austerity drive is hitting people in unexpected and unfair ways, she says.

"Everything to do with the council tax – the form you have to fill in, the way you pay – now has to be done on the internet," she said. "That's all very well, but what about people like me, who don't even have a computer? Our only solution is to go to a private company that will do it for you – for €20. So now paying our taxes costs us €20."